Investment Highlights

• We maintain our HOLD call on UMW Holdings (UMWH) with a lower SOP-derived FV of RM4.74 based on a FY20F PE of 10x for its motor segment.

• We trim UMWH’s FY19/20/21 core net profit forecast by 10%/14%/14% after factoring in lower revenue and PBT margin assumptions for the group’s equipment division. We also reduce the segment’s PE multiple to 11x from 12.5x due to the muted local construction sector’s prospects for FY20F.

• UMWH’s 9M19 core net profit of RM266.2mil (-15%YoY) was below our expectations, accounting for 66% and 69% of our forecasts and consensus respectively.

• We have also factored in the provision of a financial guarantee of RM27mil into our estimates following UMWH’s recent announcement of an error in its financial statements causing an overstatement in its 2Q19 results.

• For the automotive segment, the group recorded a marginally lower 9M19 revenue of RM6.85 bil (-1% YoY) and PBT of RM415.4mil (-1% YoY) compared to 9M18 due to lower vehicles sold due to a high-base effect from 2018’s tax holidays. Toyota sold a total of 47.6K units in 9M19 (-10% YoY) vs. 52.6K units in 9M18.

• From the group’s analyst briefing yesterday, UMWH revised its 2019 sales volume target downwards to 72.0K from 75.0K units. The group also aims to capture at least a minimum of 12% market share for the year 2020 with a TIV projection of 612.0K for the year.

• We noted an impressive increase in 9M19 associate earnings of RM227.0mil (+34% YoY) mainly attributed to better performance from Perodua. Perodua sold a total of 178.8K units in 9M19 vs. 168.2K units in 9M18 (+6% YoY). The strong sales performance was buoyed by the sales of the new Aruz and healthy demand for its entire passenger car fleet.

• UMWH’s equipment segment posted a slightly lower 9M19 revenue of RM1.1bil (-5% YoY) while net profit for the division slid significantly to RM82.2mil (-17% YoY). The lower revenue and profits was attributed to the intense competition and also a slowdown in the Malaysian construction sector. We expect the division’s outlook to remain challenging as management guided that the demand in the construction and manufacturing sectors are likely to be sluggish for the rest of 2019 and 2020.

Source: AmInvest Research - 29 Nov 2019